Home » business » Public spending to lead economic growth in H2, KResearch says

Public spending to lead economic growth in H2, KResearch says

Erich Parpart
The Nation June 24, 2014 1:00 am

All four economic engines - consumer consumption, business investment, government spending and exports - will propel growth in the second half of the year, spearheaded by the public sector, said Kasikorn Research Centre.

Pimonwan Mahujchariyawong, deputy managing director at KResearch, said gross domestic product could expand 4.3 per cent in the second half. She said that would be the result of increased certainty in government spending policies, improved business sentiment from less political uncertainty, and the return of consumer confidence, which would raise domestic consumption.

KResearch earlier announced that it had raised its GDP growth forecast for 2014 from the March prediction of 1.8 per cent to 2.3 per cent.

It saw GDP shrink by 0.6 per cent in the first quarter but sees positive growth in the remaining three quarters - 1 per cent for the second, 3.6 per cent for the third and 4.9 per cent for the final quarter.

"Economic policies from the public sector have provided the private sector with the confidence to resume normal economic activity, and the current improvement in the economic environment can be compared to a plane that is about to take off after it has been parked in the maintenance hangar for months," Pimonwan said.

She said the slowdown in domestic spending and the hit to tourism from the political uncertainty, along with the slower-than-expected recovery of the export sector, would result in GDP growing only 0.2 per cent in the first half of the year. However, she said the return of government spending through the fiscal 2015 budget and the National Council for Peace and Order's stimulus package should boost the economy in the second half.

NCPO policy

KResearch believes that the NCPO's economic policies should help expand GDP by 1.0-1.5 per cent, which could be split into the Bt92-billion payment to farmers under the rice-pledging scheme (0.5 per cent), the approval of delayed projects worth Bt700 billion by the Board of Investment (0.5 per cent) and the acceleration of state spending (0.2-0.3 per cent).

However, apart from the positive factors that can drive the economy, there are also negative factors that have the potential to slow down this progress, and most of it comes from external pressures Pimonwan said. This includes the continuation of a slow recovery in the export sector, which is hampered by lower competitiveness and falling crop prices, and the falling number of foreign tourists (the sector contracted by 5.9 per cent in the first five months).

Rising inflation pressure as a result of increased prices of goods and the potential of an increased global oil price due to the situation in Iraq are also concerns.

KResearch projected the price of crude oil at US$105-$107 per barrel in 2014, but if the situation in Iraq pushed it up to $110-$111 for more than a month, it would have a definite impact on the Thai economy.

The research centre believes that GDP could fall by 0.6 per cent if the oil price increases 10 per cent. Inflation would also take a hit from rising production costs, increasing by 0.8 percentage point, while exports would also suffer slightly. "External pressure poses a mid-term risk for the Thai economy, but if there is no widespread violence [in Iraq] and the impact of the situation on the world's economy and the price of oil is minimal, KResearch believes that the economy should be able to return to its normal potential," said KResearch managing director Charl Kengchon.